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American International Group, Inc. (AIG) Tuesday said it closed two transactions with the Federal Reserve Bank of New York that will reduce its debt to the government by $25 billion and position two units for spinoff or sale.

AIG said its outstanding debt with the New York Fed now stands at $17 billion, down from $42 billion, excluding interest and fees.

AIG said the placement of its holdings in American International Assurance Company and American Life Insurance Company in special purpose vehicles will position the units for initial public offerings or third-party sales.

The moves will result in a charge of $5.7 billion for the fourth quarter, on top of $11.7 billion in write-downs already recognized, AIG said. The insurance giant had said in early November that it expected a fourth-quarter charge of about $5 billion.

Under the previously announced transactions, AIG placed the equity of AIA and Alico in separate special-purpose vehicles in exchange for common interests in the vehicles. The New York Fed received preferred interests in the AIA vehicle worth $16 billion and in the Alico vehicle of $9 billion.

With the changes, AIG has cut the total government credit facility it can tap to $35 billion from $60 billion. The government extended the credit facility to AIG in September last year to rescue the insurer.

"We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities, such as the previously announced loss that we expect to recognize in the upcoming quarter related to our announced agreement to sell our Taiwan-based life insurer Nan Shan," Chief Executive Bob Benmosche said in a statement.